Going deep into the middle

When White Oak Global Advisors, a lending firm with three US offices, decided to build a presence in the middle of the country, the firm tapped Kevin Grossman, the former co-founder of the Later Stage/Lower Middle Market Group at Hercules Technology Growth Capital, to lead its new Denver office. Grossman’s background involves working with technology companies and life sciences at Hercules, as well as managing deal teams in Colorado and Arizona and providing venture debt, asset-based lending and other banking products as a Senior VP for Silicon Valley Bank. White Oak, for its part, has been seeing a large number of opportunities in energy-related investments in Colorado, Texas and throughout the West. Now that Grossman’s at the helm of the new Denver office, he’ll be working on finding new deals for the firm, which already has origination professionals in New York and in its San Francisco headquarters.

What kinds of investment opportunities are you seeing in Denver and Colorado in general?

Grossman: There is conventional energy of course, and there is alternative energy as well, and White Oak has an interest in both. While there is volatility in commodities pricing, technology tends to be just as important in underwriting alternative energy opportunities as it is in conventional energy. Colorado and Texas have been leaders in certain alternative energy areas, so we expect to see continued prospects there. White Oak likes to work closely with companies and entrepreneurs, and the abundance of opportunity in the region is often missed by people on the coasts. That’s where White Oak saw the opening to expand.

Do you have any preferences for what you like to invest in?

Grossman: I spent 15 years in technology so I certainly have a bias towards that – largely because that’s what I know best – but in general I enjoy working with capital-intensive companies that require capital but in turn generate return and revenue, whether that’s in telecom, technology, energy or other opportunities.

How do you plan to scout for deals?

Grossman:
We’re a direct origination shop. You find your opportunities through the people you’ve known over the years. In one of my previous roles, I did 90 individual deals with companies based in Colorado, New Mexico, Arizona and Utah. You work with many entrepreneurs when you do that. While we’re open to working with private equity sponsors, 75 percent of the deals we do are usually non-sponsored.

Is it harder to look for non-sponsored deals?

Grossman: In my relatively short tenure here, I’ve seen more diversity of industry sector than I had in my previous jobs over the last 16 years. We are industry-agnostic, while my previous two firms were not that way at all. They both had a particular focus on technology and life sciences, and the VC world caters to those industries. In the sponsor-driven world, you try to work with the 75 to 80 percent of a sponsor’s portfolio that you feel good about, and your repeat business comes from that channel. With direct originations, the repeat business still comes from a channel; it’s just a different one. Whether it’s the people who are generally involved with restructurings and turn-arounds or those who help with acquisitions along the way – they are where your repeat business comes from, as well as from the entrepreneurs themselves.

What’s your strategy for avoiding bad deals?

Grossman: You can work with broken financials, you can work with a company that’s fixing its business model, but it’s really hard to be successful when you find that the management team isn’t credible. It’s primarily about the management team and what they’ve done in the past.

We’re also in very robust markets right now. It’s easy to convince yourself that you should be a little more aggressive on the next deal than you were on the previous deal, which was a little more aggressive than the one before that. It’s harder to measure how far you’ve gone from the norm and normal underwriting standards. So it’s very important to take a good holistic approach and step back to ask if the deal makes sense before you dive in. Most of the people here have traditional credit backgrounds, which is crucial. It doesn’t mean that you can’t be creative; it means that you have a solid foundation to work from.